Effects of CP Rail strike could linger past legislated end

After tabling back-to-work legislation in the House of Commons, federal Labour Minister Lisa Raitt says she wants to see Canadian Pacific Railway trains moving again by Thursday.

But transportation and commodity experts say it could take quite a while for CP's rail service to get back to normal once the strike is brought to an end.

Barry Prentice, a business professor at the University of Manitoba, says that in the past only a handful of commodities were transported by train. But today "everything is moving in containers" that are often sent at least partway by rail.

As a result, the effect of the strike is "much more widespread than would have been the case in the past across the economy," he said.

It could take more than a month for CP to clear bottlenecks along its rail lines, he said.

"When you start up a railway, you can’t just again say 'OK everybody, get back to the trains and go,'" Prentice said. "They start to bring up one segment at a time."

Mounting costs

For days now, business groups have been complaining that the weeklong strike by thousands of CP workers is costing them dearly.

Grain elevators are filled with wheat while half a dozen cargo ships are waiting in Vancouver's port to carry it abroad, the head of the Canadian Wheat Board said.

At the same time, thousands of tonnes of potash are sitting idle instead of making their way to market, according to Richard Downey of Agrium Inc. a fertilizer supplier that owns part of Saskatchewan potash exporter Canpotex.

The dispute over proposed pension cuts and changes to work rules led to a halt in service last Wednesday, as 4,800 locomotive engineers and conductors walked off the job.

Talks between management and the union broke off Sunday, prompting the federal labour minister to table back-to-work legislation in the House of Commons Monday afternoon.

Raitt has estimated the CP stoppage will cost Canada more than $540 million per week and says that it's putting thousands of workers in other companies at risk of being laid off.

It may be impossible to pinpoint exactly how much the strike will set back the Canadian economy, says Prentice.

But he said the costs are snowballing as supply chains for everything from agricultural goods to car parts are disrupted.

"The only time people think about the railways is when they get stopped at a crossing. But this is a vital sector of our total economic well-being."

Mining and forestry industries most affected

CP accounts for close to half of Canada's rail activity, and the strike has left manufacturers scrambling to find alternate means of moving their goods.

Those in the primary sector, such as mining and forestry, may be feeling the strike's effects more deeply because of the sheer volume of products they ship per day, which makes shifting to road transport almost impossible.

"They really will be stuck," said Bob Ballantyne, president of the Canadian Industrial Transportation Association.

As an example, he pointed to Vale Inco, which is having problems transporting nickel to processing plants in Sudbury, Ont., and Thompson, Man., and then on to port in Montreal and Vancouver.

Auto-parts makers are also vulnerable to production woes from the rail stoppage because they tend to keep low inventories.

"It certainly has presented challenges," said David Adams, president of the Association of International Automobile Manufacturers of Canada.

Asian auto manufacturers have been particularly hard hit because they bring in so much material through Vancouver's port, he said. CP accounts for about half of the container traffic to that port.

A break for some?

Producers in other industries, such as technology, have been less affected by comparison because they source many of their components locally, said Garland Chow, a professor of operations and logistics at the University of British Columbia.

And one business that could wind up gaining from the strike is CP, according to Chicago-based equity analyst Keith Schoonmaker.

While the prospect of suspending shipments for a week or so might hurt the company's quarterly profits, he said the labour dispute could be worthwhile in the end if CP's management is able to save money down the road through reduced pension benefits.

"At some point the strike would be too costly, but I don't think anyone in the Canadian government would tolerate such a long duration," Schoonmaker said.

"This will benefit the share price … and I think it's just part of the overall improvement in margins at CP that we're going to see new management try to take on."

The strike began days after the company's chief executive officer, Fred Green, and several other members of the board of directors were forced out by an investor revolt spearheaded by a New York-based capital management company, Pershing Square Capital Management and its aggressive CEO Bill Ackman.